The Productivity Commission’s comprehensive study of carbon policies in key economies confirms the world is increasingly acting on climate change and a carbon price is the lowest-cost way to cut pollution.

The research highlights that far from striking out on its own, Australia risks falling behind the rest of the world if we fail to put a price on pollution.

The Commission examined action taken in seven of our top ten trading partners - China, Germany, Japan, New Zealand, South Korea, the United Kingdom and the United States. It found that all the countries examined had adopted major policies to reduce pollution and support the move to clean energy.

Including Australia, the Commission identified over 1,000 policy measures to reduce pollution, showing yet again that the world is moving towards a cleaner energy future.

For electricity generation, the report finds Australia is now significantly behind the United Kingdom and Germany in terms of the resources devoted to policies to reduce emissions, and the effectiveness of those policies. In these respects, Australia is broadly in line with actions being taken by countries like China and South Korea.

But the Commission emphasises that its report is a snapshot in time, and other countries are introducing significant new policies in this area. For example, China is trialling a carbon trading pilot in key cities and provinces and has set a target of lowering its carbon emissions per unit of GDP by 40-45 per cent by 2020, compared to the 2005 levels. South Korea will introduce mandatory economy-wide emissions trading from 2015.

The report completely debunks any scare campaigns suggesting Australia is acting alone and provides more evidence that putting a price on carbon pollution is the best way to cut pollution and protect our economy.

The Commission’s report provides further evidence that a market mechanism is the best way to cut emissions and support Australia’s transition to a clean energy economy. It is consistent with the support for a carbon price expressed in the Garnaut Review, senior market economists and business groups such as the Business Council of Australia and Australian Industry Group.

While approaches vary from country to country, the Commission makes clear that a price on carbon is by far and away the most efficient way to reduce pollution. The report explains that:

...the incentive provided for demand-side abatement is a major reason for the relative cost-effectiveness of carbon-pricing mechanisms. (Overview, page xxxi)

The report notes that policies of the type advanced by the Coalition impose much greater costs on taxpayers while achieving much smaller emissions reductions, and points out that:

… the consistent finding from this study is that much lower-cost abatement could be achieved through broad, explicit carbon pricing approaches, irrespective of the policy settings in competitor economies. (Page 155)

These conclusions add to the weight of authority showing that Mr Abbott’s so-called ‘direct action’ is not a viable means of addressing climate change - it will cost Australians more, deliver no assistance to households, and will be much less effective because it will do little to encourage demand-side abatement.

By contrast, a carbon price in Australia will make dirty energy more expensive and clean energy, like solar, gas and wind cheaper.

It will only apply to the biggest polluters in our economy, of which there are less than 1,000, requiring them to pay for every tonne of carbon pollution that they emit.

This is the most effective and cheapest way for us to build a clean energy economy and protect our precious natural environment for future generations.

Copies of the report will be available from the Commission’s website: www.pc.gov.au